Wading Through California's Rooftop Solar Quagmire

The state's Net Energy Metering scheme is about to get a redesign and almost nobody can agree on what must be done

If you live in California, you’re probably aware that a controversy exists regarding rooftop solar. More specifically, the controversy surrounds Net Energy Metering 3.0 (NEM 3.0), which is a technocratic term for language governing the state’s latest, proposed regulatory treatment of rooftop solar.

Some background.

• In December, an administrative law judge at the California Public Utilities Commission (CPUC) issued a proposed decision (PD), which, if ultimately adopted by the five commissioners at the CPUC, would establish the state’s latest batch of rooftop solar rules.

• The PD reasons that, as currently designed, California’s NEM tariff “negatively impacts non-participating customers; is not cost-effective; and disproportionately harms low-income ratepayers.” The PD therefore recommends a restructuring of the tariff.

What would this restructuring look like? Well, if approved by the CPUC, the PD would cut payments to solar-panel owners in California by as much as 80% (and charge a tax to homes with solar). In the CPUC’s view, this reconfiguration would better incentivize solar installations that are paired with energy-storage capabilities, send clearer price signals, and enable an “equity fund” to grant low-income customers better access to distributed energy resources.

Rooftop solar proponents are pissed. Their ranks, which include many celebrities, view the CPUC’s proposal as an attack on solar power itself. Additionally, critics of the PD have framed the proposal as being too cozy with the state’s major investor-owned utilities (PG&E, SCE, and SDG&E).

Some also argue that the CPUC is proposing the discriminatory treatment of solar-equipped homeowners in order to prevent cost shifts to non-NEM utility customers (even though rate design in California is already replete with innumerable cost shifts).

Several of these homeowners feel they helped solar technologies advance from a nascent concept into something far more ubiquitous, and the CPUC now intends to “reward” them with taxes and slashed subsidies.

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This is where the argument gets red-hot, and a question worth asking is this: Why should non-NEM customers, most of whom are less affluent than NEM customers, fund an imbalanced compensation scheme that may not even promote the mass proliferation of solar technologies, which we’re told is a crucial goal?

As Dave Roberts, the poster boy for progressive energy policy, once wrote: it’s possible that the expansion of rooftop solar “will not increase the net amount of solar in the state much, or at all. It might just substitute rooftop solar for centralized solar.”

So…the NEM discussion is fraught with complexity, class issues, and anger.

That anger inspired over 500 people to phone in to a recent CPUC business meeting to challenge the PD. Callers’ objections stalled the meeting for over seven hours, despite the fact that NEM 3.0 wasn’t even up for consideration that day.

A N A L Y S I S

Just for fun, let’s attempt an impartial and dispassionate analysis of the situation.

California has aggressive (lunatic?) plans to mitigate GHG emissions and move toward the electrification of everything. Whether you believe in this approach or not, it’s fair to ask – does the state’s current regulatory treatment of rooftop solar help California realize its lofty vision?

University of California-Davis professor James Bushnell says no. He argues that NEM, in its current incarnation, is an obstacle to California’s climate goals. He writes:

For many years, NEM has been a growing impediment to the centerpiece of California’s current climate plan– electrification of households and transportation.

How could NEM be impeding climate progress? It’s really not that complicated.

1. Under the current NEM, homes with rooftop solar do not contribute much to the cost of electricity infrastructure, wildfire mitigation and compensation, investments in new clean technologies, and many other programs utilities are required to pay for.

2. Those costs are still recovered through the price of electricity, so the more homes that go solar, the higher the cost of electricity for everyone else. This is the real solar tax – one that is paid by non-solar homes.

3. Higher electricity prices make the shift to electric vehicles, space heating, and water heating less and less appealing to the majority of Californian’s whom the state’s own climate scoping plan is counting on to electrify their lifestyles.

Bushnell prescribes the following.

The solution, which makes too much sense to ever be widely adopted in California, is to make NEM irrelevant. We have spent too long arguing about the rates paid by solar homes and not enough time talking about the rates paid by everyone else. The proposed monthly fixed charge (e.g. solar tax) is simply a means of recovering the fixed costs of distributing electricity in California. But we shouldn’t stop at only the solar homes. The road to electrification is to shift everyone to a rate structure that encourages electrification, one that accurately reflects the high costs of connecting to the grid and the low costs of actually consuming electricity. 

This means moving everyone to a monthly connection charge and lowering the marginal price of electricity by an amount that offsets the revenues raised by the connection fees. It’s not a revolutionary idea. Lots of electric utilities already do it. Our gas utilities in California already do it. In fact, California’s CPUC regulated electric utilities are about the only utilities in the country to not charge a monthly connection fee.

This seems like a workable solution IF one buys into the premise that electrification of everything (sans nuclear generation) is the desired end game. Our substack will address this topic at a later date.

Regardless, NEM 3.0 has gone back to the drawing board. Alice Reynolds, the newly appointed president of the CPUC (and former advisor to Gavin Newsom) wants the agency to consider revisions to the current PD. An alternative PD (or heavily-modified version of the original PD) is likely forthcoming.

It will be interesting to see how any final decision impacts the future of distributed generation in California and what messages the regulators send regarding their perception of the value (and role) of decentralized technologies.

1. This piece at Utility Dive hits on several interesting points and suggests that “[e]xisting [NEM] customers should be grandfathered under the NEM rules that applied when they installed solar regardless of the associated legacy cost-shift.”